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Et tu, San Francisco? Eminent domain heading to larger cities

The prospect of it surviving has title insurers on edge

The municipalities that have caught the eminent domain bug all share something in common – they’re all near or in California and exposed to a political ideology that generally believes the end always justifies the means – even if the chosen "means" is always much crueler and political than the initial harms reported to the public through the media.

Now we know at least one official associated with the city of San Francisco would like the larger municipality to take on eminent domain as a solution to help underwater borrowers, in the same way that Richmond, Calif., has been pursuing that strategy.

As reported by HousingWire, San Francisco Supervisor David Campos revealed plans to propose a similar resolution to get the County Board of Supervisors in San Francisco behind eminent domain as a tool for dealing with underwater borrowers.

After all, the proverbial torch was lit when the city of Richmond approved eminent domain in a 4-to-3 vote Tuesday night.

But the impact of eminent domain, which has yet to be used officially in this proposed fashion, could reverberate in a way that shocks various dimensions of the housing system, harming companies – even future homebuyers.

As HousingWire reported, the stocks of title insurers tumbled earlier this week in trading.

Early on, a slowdown in housing was suggested as the cause for the insurers' market woes. But, perhaps, the American Land Title Association sent the market a clearer picture as to why the stocks took a tumble a day after Richmond’s city council moved forward with eminent domain plans.

"The use of a municipality’s power of eminent domain to seize mortgage loans raises profound Constitutional and other legal concerns," said Michelle Korsmo, chief executive officer of the American Land Title Association (ALTA). "It is clear that the recent proposal in Richmond, California, and subsequent legal filings are likely the start of a long and drawn out legal process."

Korsmo went on to say the chief problem with eminent domain is that it upsets a complex legal and financial structure already in place, leaving future homebuyers and homeowners on the hook.

"Until these lawsuits are resolved, homeowners may not know who to pay or the amount they need to pay off their mortgage. Additionally, any purported extinguishment of an original mortgage obtained through the eminent domain process may cause title insurance to be unavailable in subsequent transactions, or, at a minimum, result in exclusions from title insurance coverage. Title insurance protects real property owners and mortgage lenders against losses from possible defects in the title. In addition, rulings on eminent domain challenges in one jurisdiction will likely create a ripple effect impacting the legality of this type of eminent domain in all jurisdictions.”

So if it was a mystery Wednesday as to why title insurers took a tumble on the New York Stock Exchange, perhaps the above stated fears were the underlying cause.

Either way, what’s in store for the market with eminent domain on the table could be even more legal infighting.

If any of these proposals do stick long-term, it won’t be surprising if consumers on the other side of the market end up picking up the bill one way or another.

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Kerri Ann Panchuk was the Online Editor of HousingWire.com, and regular contributor to HousingWire magazine. Kerri joined HousingWire as a Reporter in early 2011 and since earned a law degree from Southern Methodist University. She previously worked at the Dallas Business Journal.

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